EDI & Supply Chain

The How and Why of EDI within Supply Chain.

Written by: Casey Jenkins, Owner of Eight Twenty-Eight Consulting LLC

EDI has become a staple for many organizations as a means to transact with other business and trading partners. However, as technology and EDI capabilities have evolved, transactions now can extend into systems and applications, as well as work with other integrations to create a more efficient supply chain. With as complex and interconnected as global supply chains have become, the ability to remain competitive depends on the ability for companies to exchange data.?

EDI Basics.

EDI, or Electronic Data Interchange, is the electronic exchange of trading partner documentation in a standard format from one system or application to another. Developed in the late 1960s, EDI sought to strengthen links between commercial entities through transmitting documents electronically versus manual exchanges.

Now, EDI has evolved to become the foundation to business transactions and is widely used across many industries and company sizes. Within supply chain and logistics specifically, a few common documents exchanged via EDI are invoices, purchase orders, order acknowledgements, shipping requests, and shipment documentation.?

EDI has set the foundation for data exchange and is now leveraged with other integrations to make supply chains and transactions more efficient than ever. While transactional data may seem like a small component of a company’s operations, it’s actually the foundation to what drives the overall workings and day-to-day activities.

How it Works.

Not all businesses have the same systems. In order to exchange documentation from one trading partner to another via EDI, there must be a standard so the documentation and information exchanged can be transferred, accepted, and processed correctly. This is where it’s important to ensure data quality so information being conveyed is accurate and complete.

EDI document standards can vary based upon industry, but the most common file format standards are UN/EDIFACT, TRADACOMS, ANSI ASC X12, ODETTE, and UBL.

Transmission of these documents is either via a Value Add Network (VAN) or Point-to-Point (direct). A VAN requires the use of a third party to communicate between the two trading?

partners, where a Point-to-Point connects parties directly for transmission. When trading directly with multiple business partners, the issue of varying transmission protocols arises versus using a VAN who often support multiple transmission protocols.

The most common transmission protocols include AS1, AS2, AS3, AS4, FTP, OFTP, Web EDI, and Mobile EDI. Each of these transmission protocols were created in different time periods and therefore carry different security measures for transmission.

The standard process for EDI is document preparation, translation, and transmission. Preparation of the document includes generating the required data that’s needing to be sent. Because this can vary from one business system to another, the data then is translated to and/or from a document standard. This is a key piece within transmission so that both systems can understand the information being transmitted.?

Operational Benefits of EDI.

In order for companies to remain competitive, data and information must be communicated rapidly between two trading partners. With as complex and interconnected as global supply chains have become, the ability to transmit and act on data and information extends outward from end-to-end. As a key method of communicating transactional data, EDI provides benefits to organizations across the supply chain.

1. Increased Speed & Efficiency. As the business and supply chain landscape are evolving, speed and efficiency are becoming a necessity for organizations to remain competitive. With data and information flows setting the foundation for business operations, EDI allows for a faster exchange of data both internally and externally.?
2. Improved Internal & External Operations. The exchange of data and information drives the processes that take place both within an organization and externally with other providers. Efficient data conveyance allows organizations to derive processes that reduce manual tasks, drive data-backed decision making, and foster more proactive operations.
3. Better Resource Utilization. Reduction of manual activities allows resources to apply their skills and knowledge where it matters most. Through taking the focus off of tedious and wasteful activities that EDI can handle, resources are able to act as value drivers versus data pushers.?
4. Higher Data Quality. Errors in data entry can severely impact data quality. With EDI, data flows electronically reducing the need for manual entry and errors that come along with it. An output is only as good as the data being input. By leveraging EDI as the?means to convey data and information, higher quality data is being input to flow throughout the business system.?
5. Increased Value. The premise of supply chain as a foundational concept is to drive value at a reduced cost. With EDI providing faster exchange of information, visibility and access to data allow partners to collaborate to make data-backed decisions that avoid additional costs. Along with that, efficient operations and better use of resources promote a forward-thinking and proactive mindset that shifts organizations to plan ahead versus react in real-time.
6. Risk Management. As disruptions have become the norm within the global supply chain, the transmission of data and information helps companies to avoid risks. By being able to leverage EDI in conjunction with other integrations, companies are able to predict, reduce, or avoid risks to keep disruptions mitigated.

Factors to Consider.

When looking to upgrade to or leverage a new EDI provider, there are a few factors to keep in mind to ensure the correct solution and partner are implemented to produce fruitful results.?

It’s important to first identify your business needs and look at the processes that are currently using or will utilize an EDI solution. From there, mapping how information is flowing both internally and externally will set a baseline understanding of what solution and partner will be required for successful business operations.?

When looking for an EDI solution and partner there are three core factors to consider to ensure the right provider is selected:

1. Experience & Expertise. Not all providers are the same. Identifying your business needs will determine the provider that is best suited for the outcome you desire, the industry you are operating in, and the information needing exchanged.
2. Customer Support. A partnership is not a one-time transaction. With how integral EDI solutions are to an organization’s success, you need a partner who will provide the right support in a timely manner. Vetting a provider based upon responsiveness, availability, and issue resolution will determine if the provider is suitable for your business needs.?
3. Ability to Evolve. Company growth isn’t stagnant. As companies grow and evolve, their systems and processes need to evolve with them. Adjusting to changing markets, consumer needs, and operational changes require partners that have the knowledge to stay up on industry trends and the capabilities to adjust solutions to support change.

Selecting the right provider must also be at the right price point for what your business needs. Executing a cost-benefit analysis that compares the cost to the return will prove useful in identifying which partner is best for you.

Keep in mind that EDI is only as good as it's ability to effectively move data and information through an organization. So it's recommended to review your processes both internally and externally to identify how to leverage EDI more effectively to get the most valuable return.